Editorial: When governments privatize services, they should reasonably monitor how those services are delivered

The city of Memphis has moved on beyond Linebarger Goggan Blair & Sampson, and the complaints that the company was charging financially strapped property owners excessive fees to collect delinquent taxes.

Still, it is good news that thousands of taxpayers who paid the fees now will be eligible for refunds as the result of a $7.4 million settlement with Linebarger, which had a contract with the city to collect delinquent property taxes and fees from 2004 to 2012.

Perhaps more important in this outcome is the message that governments that privatize services cannot just sign a contract and step away. They must retain a reasonable amount of oversight to make sure companies trying to maximize their bottom lines are doing so within the rules.

Linebarger likely will take issue with that statement. The Texas-based collection and law firm, according to the firm's attorney, "vigorously contested" the case, "but prudence dictated we resolve the matter now as to avoid the uncertainties of the courtroom."

The settlement, approved by a state judge, stemmed from a class-action case against Linebarger. The lawsuit challenged Linebarger's 20 percent fee for collecting delinquent taxes.

A Tennessee law says attorneys pursuing back taxes cannot receive compensation greater than 10 percent of all delinquent fees collected. Another statute says a 10 percent penalty can be imposed on those whose taxes are delinquent, and that the penalty will go to the attorney suing to collect the back taxes.

Linebarger interpreted that wording to allow for a total fee of 20 percent, while the class-action plaintiffs said the two statutes limit the fees that can be charged at 10 percent.

Complaints about the fee drew the ire of some members of the Memphis City Council and were among the reasons the city administration decided not to renew Linebarger's contract when it expired Dec. 31.

In December, the City Council voted to shift the collection of current and delinquent city taxes to Shelby County Trustee David Lenoir.

By all accounts, Linebarger did a good job of collecting delinquent taxes, but at a price that added to the misery of city property owners who had trouble paying their taxes.

Of course, the argument can be made that if those people had paid their taxes within a reasonable time they would not have had to deal with Linebarger and be subjected to the extra 10 percent fee. But there is no indication that most of those behind on their taxes were intentional scofflaws. Many of them just did not have the money, and the extra 10 percent Linebarger charged exacerbated their situation.

Privatization of some city services is a prudent way to cut the cost of government. But local governments also have an obligation to monitor those services to make sure the private companies are not stretching the rules to add to their bottom lines.